Strategic Oil & Gas Ltd. (ticker: SOG) announced a 53% increase in proved and probable reserves to 19.6 MMboe at year-end 2016. In 2016 the company invested $29.3 million in capital expenditures in drilling four delineation and four production wells at Marlowe. The invested capital added 7.5 MMboe of proved and probable reserves at a finding and development cost of $9.83 per boe, including changes in future development costs. This resulted in an increase of $87 million in net present value of proved and probable reserves to a total of $194 million compared to year-end 2015.
The company also advises that it filed Articles of Amendment to give effect to a consolidation of all of its issued and outstanding common shares on the basis of twenty (20) pre-consolidation common share for one (1) post-consolidation common share in the capital of the company.
MUSKEG WELL 14-35 PRODUCES OVER 21,000 BOE IN 24 DAYS
The company recently tied in the step out Muskeg well 14-35 by constructing a 4 km pipeline. Production from the 14-35 well has averaged 885 boe/d (50% oil) over the last 24 days. The production performance of the 14-35 well is similar to the 14-12 and 2-13 Muskeg wells, both of which were brought on production late in the fourth quarter of 2016. The 14-12 well tested at 810 boe/d (59% oil) over 4 days and the Muskeg 2-13 well tested at 1,057 boe/d (54% oil) over 7 days.
Strategic continues to execute its $30 million capital spending program for the first half of 2017, which includes six Muskeg horizontal wells. Strategic has drilled three wells and the fourth well is underway. The Muskeg wells are being drilled in the fairway between the 14-35 well and the 2-13 well.
RESERVE HIGHLIGHTS
Proved reserves increased 43% from 2015 to 9.3 MMboe and proved and probable reserves increased 53% to 19.6 MMboe.
Strategic added 7.5 MMboe of proved and probable reserves in 2016, for a reserve replacement ratio of 1,030%.
All in finding and development costs were $16.11 per boe for proved reserves and $9.83 per boe for proved and probable reserves on capital expenditures of $29.3 million.
Net present value of proved and probable reserves, discounted at 10%, increased 81% to $194.4 million at December 31, 2016 from $107.5 million in 2015 despite an overall decrease in the commodity price forecast used by the reserves evaluator.
Future development costs per well dropped $0.1 million to $3.0 million at year-end 2016 despite the increase to 20 completion stages and corresponding increase in well length compared to prior year, reflecting the company’s increased efficiencies and lower costs per stage on its Muskeg drilling programs.
RESERVES
In accordance with National Instrument 51‐101 ‐ Standards of Disclosure for Oil and Gas Activities (“NI 51‐101”), the company’s oil, natural gas and natural gas liquids (“NGL”) reserves were evaluated by an independent engineering firm, McDaniel and Associates Consultants Ltd. (“McDaniel”) as at December 31, 2016. See “Information Regarding Disclosure on Oil and Gas Reserves” in this press release.
Strategic’s reserves at December 31, 2016 are summarized below.
| Gross Reserves(1) | Light and Medium Crude Oil (Mbbl) |
Heavy Oil (Mbbl) |
Natural Gas (MMcf) |
Natural Gas Liquids (Mbbl) |
Oil Equivalent (Mboe) |
|
| Proved Producing | 2,336 | – | 6,308 | – | 3,387 | |
| Proved Non-Producing | 314 | – | 1,380 | – | 544 | |
| Proved Undeveloped | 3,409 | – | 11,960 | – | 5,402 | |
| Total Proved | 6,059 | – | 19,649 | – | 9,334 | |
| Total Probable | 6,511 | – | 22,253 | – | 10,220 | |
| Total Proved and Probable | 12,570 | – | 41,902 | – | 19,553 | |
| (1) | Gross reserves are the company’s total working interest share before the deduction of any royalties and without including any royalty interests of the company. | |||||
All of the company’s reserves are located in the Marlowe core area. Proved and probable producing reserves represent 23% of total proved and probable reserves, as compared to 37% at December 31, 2015.
McDaniel estimates the future development costs (“FDC”) required to convert undeveloped and non-producing reserves to producing reserves at $165.7 million. This includes 54 Muskeg Stack and 1 Keg River proven and probable undeveloped locations at Marlowe, of which 28 Muskeg Stack and 1 Keg River are booked as proven undeveloped locations. The reserve report anticipates these wells to be drilled over the next 3 years. The total booked locations represent less than 10 percent of the potential Muskeg Stack inventory identified on company’s land holdings in the Marlowe area.
A reconciliation of the company’s reserves at December 31, 2016 to the previous year-end is as follows.
| Thousand Barrels of Oil Equivalent (Mboe) | Proved | Probable | Proved and Probable |
||||
| Opening Balance December 31, 2015 | 6,531 | 6,213 | 12,743 | ||||
| Discoveries and Extensions | 3,055 | 3,994 | 7,049 | ||||
| Technical Revisions | 712 | 208 | 919 | ||||
| Economic Factors | (303 | ) | (195 | ) | (498 | ) | |
| Production(1) | (661 | ) | – | (661 | ) | ||
| Closing Balance December 31, 2016 | 9,334 | 10,220 | 19,553 | ||||
| (1) | Financial information is from Strategic’s preliminary unaudited consolidated financial statements for the year ended December 31, 2016, and is subject to change. See Unaudited Financial Information in this press release. | ||||||
Strategic’s light and medium oil, natural gas and NGL reserves were evaluated by McDaniel using McDaniel’s product price forecasts effective January 1, 2017 prior to provision for financial risk management contracts, income taxes, interest, debt service charges and general and administrative expenses. The following table summarizes the net present value from recognized reserves at December 31, 2016, assuming various discount rates, and incorporating FDC and abandonment liabilities. The following table summarizes McDaniel’s commodity price forecast for the next five years.
| Year | WTI Crude Oil ($US/bbl) | Edmonton Light Crude Oil ($C/bbl) |
AECO Spot Natural Gas (C$/MMBtu) |
Foreign Exchange Rate (US$/C$) |
||||
| 2017 | 55.00 | 69.80 | 3.40 | 0.750 | ||||
| 2018 | 58.70 | 72.70 | 3.15 | 0.775 | ||||
| 2019 | 62.40 | 75.50 | 3.30 | 0.800 | ||||
| 2020 | 69.00 | 81.10 | 3.60 | 0.825 | ||||
| 2021 | 75.80 | 86.60 | 3.90 | 0.850 | ||||
| Summary of Before Tax Net Present Value of Future Net Revenue (Forecast Pricing) (1)(2) | ||||||||
| Discounted at | ||||||||
| ($ thousands) | Undiscounted | 5% | 10% | 15% | ||||
| Proved Producing | 55,581 | 45,439 | 38,691 | 34,004 | ||||
| Proved Non-Producing | 9,779 | 7,789 | 6,396 | 5,389 | ||||
| Proved Undeveloped | 83,128 | 63,181 | 48,787 | 38,233 | ||||
| Total Proved | 148,488 | 116,409 | 93,873 | 77,626 | ||||
| Total Probable | 249,896 | 152,160 | 100,561 | 70,618 | ||||
| Total Proved and Probable | 398,384 | 268,569 | 194,434 | 148,245 | ||||
| (1) | Based on McDaniel’s January 1, 2017 commodity price forecast. |
| (2) | Tables may not add due to rounding. |
Strategic incurred capital expenditures of $29.3 million in 2016. The following table summarizes Strategic’s finding and development (“F&D”) costs including changes in FDC.
2016 F&D costs
| ($ thousands (unaudited), except as noted) | |||
| Proved | Proved & Probable |
||
| F&D Costs, Including FDC | |||
| Exploration and Development Expenditures(1) | 29,279 | 29,279 | |
| Total Change in FDC | 26,532 | 44,141 | |
| Total F&D Capital, Including Change in FDC | 55,811 | 73,420 | |
| Reserve Additions, Including Revisions – Mboe | 3,464 | 7,471 | |
| F&D Costs- $/boe | 16.11 | 9.83 | |
| (1) | Financial information is from Strategic’s preliminary unaudited consolidated financial statements for the year ended December 31, 2016 and is subject to change. See Unaudited Financial Information in this press release. | ||
CONSOLIDATION OF COMMON SHARES
The company is also pleased to advise that on February 23, 2017 it filed Articles of Amendment to give effect to a consolidation of all of its issued and outstanding common shares on the basis of twenty (20) pre-consolidation common share for one (1) post-consolidation common share in the capital of the company (the “Consolidation”). It is expected that the Common Shares will commence trading on the TSXV on a consolidated basis on or about February 28, 2017. As a result of the consolidation, the company has approximately 46.4 million common shares outstanding. The company’s trading symbol will remain “SOG”. The shareholders approved the consolidation of the company’ shares by a special resolution at the company’s annual general meeting on May 5, 2016.
Strategic believes that a stock consolidation could lead to increased interest in the company by a wider range of potential investors, and would better position the company to pursue acquisition and financing opportunities in the future. No fractional common shares shall be issued in connection with the consolidation and in the event that a holder of pre-consolidation common shares would otherwise be entitled to receive a fraction of a post-consolidation common share, such fractional interest shall be rounded up to the nearest whole number of post-consolidation common shares.
Letters of transmittal with respect to the consolidation are being mailed to all registered Shareholders. All registered Shareholders who submit a duly completed letter of transmittal along with their respective share certificate(s) representing the pre-consolidated common shares to the company’s transfer agent, TSX Trust company, will receive share certificate(s) representing their post-consolidated common shares. Until surrendered, each share certificate representing pre-consolidation common shares will represent the number of whole post-consolidation common shares to which the holder is entitled as a result of the consolidation. Shareholders who hold their common shares through a broker or other intermediary and do not have common shares registered in their name will not be required to complete a letter of transmittal.
Strategic Oil & Gas is presenting at EnerCom Dallas, which is being held March 1-2, 2017.
